John Redwood’s contribution to the Statement on the Eurozone, 10 Oct

Mr John Redwood (Wokingham) (Con): When the Chancellor gave his authority to create another £75 billion of money, what forecast was he given about the impact that that will have in the next couple of years on the price level and therefore on real incomes? So far it has been high inflation that has clobbered real incomes and depressed demand.

The Chancellor of the Exchequer (Mr George Osborne): As my right hon. Friend will know, in its most recent quarterly bulletin, the Bank of England did an assessment of the impact that the previous round of quantitative easing had had; it thought that that had increased GDP by 1.5% to 2%, but that it had also increased inflation. However, the Bank was very clear that in recommending or requesting further quantitative easing, it was still aiming to hit its inflation target in the required two-year period.


  1. frank salmon
    October 11, 2011

    Of course we are talking about real wages and real prices. Mervyn King suggested an RRP fall of around 8% before the first tranche of quantitative easing. Therefore, he could increase money supply by 8% of GDP and have no net effect on prices. This is what happened. The trick is to get the money out of the economy when (or if) it recovers and inflationary trends start to bed in.

  2. Antisthenes
    October 11, 2011

    I doubt that the BoE’s aim is any more likely to be any better in the future than it has been in the past. QE is like kicking a reluctant person to keep that person in motion until both fall down exhausted the one from being kicked the other from doing all the kicking.

  3. James Reade
    October 11, 2011

    Antisthenes: I hope the Bank’s aim is as good as it was between 1997 and 2005. That past record was pretty impressive, even if long forgotten.

    John, through which spectacles are you observing the economy? It’s not often I agree with Osborne, and particularly that politician’s trick of not really answering the question, but it didn’t deserve a response. Depressed demand is caused by high inflation?!?! By that argument, what happened in the 1970s, 1980s and 1990s when we regularly had inflation above 5%?

    Depressed demand is caused much more by uncertainty over future jobs for much of the population than inflation, uncertainty not helped by the current government’s policies towards public sector cutting, which cuts jobs not just in the public sector, but those that depend heavily on the public sector (e.g. a lot of consultancy). Folk in your constituency, I’m sure.

    If I’m unsure about my entire future income stream I change my spending habits. If I see inflation is 1 or 2 percentage points higher, am I really likely to wholesale stop spending?

    Reply: Why then was demand more depressed under Labour ,following a very expansionary public borrowing and money printing policy?

    1. scottspeig
      October 12, 2011

      I am spending the same amount of money, but on fewer things. Mainly food/petrol. This in effect is driving my custom away from retail as I can no longer afford it due to rising prices/ no pay increase.

      What I am trying to explain is that with inflation, while GDP may remain the same (I’m still spending the same), the overall economy will shrink as I can no longer afford the “luxury” items. Inflation is hurting businesses and therefore the economy

  4. James Sutherland
    October 21, 2011

    One recent news report covered this idea more accurately than I suspect the authors intended, stating that the BofE was to print £75,000,000,000 “to simulate economic growth”. I’m pretty sure the reporter was supposed to parrot the government line that it will ‘stimulate’ growth, but if the shoe fits…

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